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Chairman's comments on the preliminary results to 31 December 2010

A word from Richard Burrows

Richard Burrows, Chairman

This has been a good year for your company in spite of difficult trading conditions. The global economic climate has affected consumer spending in many parts of the world but the inherent strength of your company’s business, with its worldwide reach to emerging and developed markets, its balanced portfolio of brands and its consistent focus on innovation, continues to deliver impressive results and sustained shareholder value.

Strong business performance

Reported revenue rose by 5 per cent to £14,883 million at current rates, while organic revenue rose by 3 per cent at constant rates of exchange. Adjusted profit from operations increased by 6 per cent at constant rates of exchange and by 12 per cent to £4,984 million at current rates. The benefit from the translation of our results into sterling was £239 million.

This resulted in adjusted diluted earnings per share growing by 15 per cent to 175.7p.

Our regions all contributed to our very good results. However, the growth in illicit trade in a number of markets remains a cause for concern. For example, in Romania – one of our two main markets in our Eastern Europe region – our market share was up but industry volumes declined significantly due to large excise-driven price increases that led to a sharp rise in illicit trade.

Our overall Global Drive Brand volumes grew by 7 per cent in the year and we increased our overall market share in our Top 40 markets. Despite global recessionary pressures, we also improved our share of the premium segment in these markets.

Dividends

The Board has recommended a final dividend of 81.0p per share, which will be paid on 5 May 2011 to shareholders on the register at 11 March 2011. This takes the total dividend for the year to 114.2p, an increase of 15 per cent, and maintains our target of paying out 65 per cent of sustainable earnings in dividends.

Share buy-back programme

In 2009, the Board decided to suspend the share buy-back programme that started in 2003, in order to preserve the Group’s financial flexibility during a period of economic uncertainty. As a result, no shares were bought back during 2009 and 2010. The Board has approved the resumption of the programme in 2011 with a value of up to £750 million.

Board changes

During 2010, Kieran Poynter joined our Board as a Non-Executive Director. And, at our forthcoming AGM, Ana-Maria Llopis will retire from the Board after eight years of excellent service.

At the end of February 2011, Paul Adams, our Chief Executive, retires after seven years in that role. Paul has made an immense contribution and has led your Company to a recognised position of pre-eminence in the industry.

Nicandro Durante takes over as Chief Executive on 1 March. He is very experienced in this industry and, as you will see in this report, he is committed to continuing our successful strategy and driving growth.

John Daly has joined the Board as Chief Operating Officer and he also has a lot of experience in the industry and a very good track record.

Ben Stevens, Finance Director, has been appointed as Chief Information Officer in addition to his Finance role. This means he will have direct responsibility for the transformation of the Group as we continue to develop a more integrated approach to the management of the business.

To all our directors on the p.l.c. Board and the Management Board, and to all our employees around the world, I express my thanks and appreciation for your efforts that have made this company so successful in 2010. To Paul Adams, I say thanks and I wish you a long and happy retirement.

Excellence in sustainability

We can be justly proud of our record of excellence in sustainability, which helps us create wealth for our shareholders as well as creating value for our stakeholders.

We have long had the brands and people to deliver very good results in our key markets. During the last ten years, we have become better at demonstrating that we are running our business responsibly and we have made a number of important improvements that should ensure your company’s long-term success.

Our first Social Report was published in 2002 and this year sees our tenth publication, as our 2010 Sustainability Report is published alongside our Annual Report at the end of March for the first time.

Opportunities for growth

British American Tobacco remains in very good shape at the end of 2010. We have increased our competitiveness by growing our share in key markets and improving our cost base. There will be further global economic challenges ahead but we can see strong opportunities for growth too. That’s why I am confident we can continue to deliver superior shareholder returns in 2011 and beyond.